I write about innovation, careers,and unforgettable personalities. My Forbes magazine cover stories have analyzed Sequoia Capital, LinkedIn, Amazon and Hewlett-Packard. In 1997, while at The Wall Street Journal, I shared in a Pulitzer Prize for national reporting. Along the way, I've written four books: "Merchants of Debt," "Health Against Wealth," "Perfect Enough" and "The Rare Find." Contact me anytime at GCAForbes@gmail.com

Inside Amazon's Idea Machine: How Bezos Decodes Customers

A few months ago Amazon reached what its founder and CEO Jeff Bezos demurely tells me was “an interesting milestone.” The retailing giant, so ubiquitously associated with books, then music and video, now has tens of millions of products in stock—and a majority are nonmedia goods: drills, dress shoes, tennis rackets and almost anything else that a human can ship. Adults may still mentally link Amazon with Barnes & NobleNoble, but to teenage customers, Amazon is now synonymous with store.

That turning point might be Bezos’ greatest accomplishment. In officially transforming Amazon from an online bookstore that sells other stuff to a retailer—and business ser­vices provider—that once sold mostly books, he has taken one of the original Internet bonanzas and created a success story all over again. Its stock is up 397% in the last five years.

With a net worth of some $19 billion, the 48-year-old is one of the 30 richest men in the world. Yet he still dashes around Amazon with the intensity of a startup boss trying to make his first payroll, as well as the glee of a teenager discovering all the fun you can have at overnight camp. “I’m a legitimately happy person,” Bezos explains on a recent, rainy Friday morning at Amazon’s Seattle headquarters. “My wife says: ‘If Jeff is unhappy, just wait five minutes.’”

What’s not to be happy about? He’s the number one CEO in America. The passing of Steve Jobs has left him, without question, as the corporate chief that others most want to meet, emulate and deify. And his primacy can be proven with numbers: FORBES’ ranking of top CEOs—using a bang-for-the-buck methodology that factors in sustained performance, modest compensation and the ability to pull ahead of one’s peers—has Bezos comfortably in the top spot. Indeed, he’s in the highest 5% in every single metric.

Across numerous e-mail back-and-forths and face-to-face questions with Bezos, I’ve come to understand why. More than a century ago another legendary retailer, Chicago’s Marshall Field, championed the fatalist’s slogan: “The customer is always right.” Bezos, perhaps more than anyone, has taken that mantra into the digital era, incrementally cracking one of the business’s great mysteries: figuring what customers want before the cash register rings and then making those insights pay off. In an era when high-flying tech companies outdo each other with worker perks, no-frills Bezos is proving the potency of another model: coddling his 164 million customers, not his 56,000 employees.

Jeff Bezos’ managers at Amazon find him formidable enough. But the figure that overwhelms their lives goes by the internal nickname “the empty chair.” Bezos periodically leaves one seat open at a conference table and informs all attendees that they should consider that seat occupied by their customer, “the most important person in the room.”

If the empty chair is the ultimate boss at Amazon, then Bezos is its billionaire enforcer, the guardian of what he calls the “culture of metrics” that tries to give that inanimate object a loud, clear voice. Amazon tracks its performance against about 500 measurable goals. Nearly 80% relate to customer objectives. Some Amazonians try to reduce out-of-stock merchandise. Others race to build a bigger library of downloadable movies. Intricate algorithms turn one group of shoppers’ past habits into custom recommendations for new customers. Hourly bestseller lists identify what’s hot. Weekly reviews keep track of who is on course—and where corrective attention is needed.

Amazon is so confident of its ability to personalize the site for each user that the company hardly ever creates classic customer-segment personas, such as “soccer moms” or “gearheads.” Such marketing standbys are too imprecise for Team Bezos.

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Amazon is a great example of staying focussed on the customer (even the angry ones) you will learn, what to do and what not to do. As we are all looking to stretch our dollar, after all the research to buy anything most often, you end up buying on Amazon.

One really key fact that never seems to get mentioned: retailers selling through Amazon make much more profit than selling through big name outlets like Target etc. AND it’s much easier. You don’t have to deal with complicated EDI, hire technical people…

It’ll be interesting to see if they start to directly compete with UPS and Fedex in the future, as they are doing so much in terms of logistics already.

Also good to see at least one company that looks beyond the next quarter.

Great article on Amazon and Jeff Bezos. Excellent insights on Amazon’s focus on the customer and Bezos’ leadership skills. And I do agree, he could be considered the successor to Steve Jobs. Look at what he’s done. He started a company that sold books and made it the biggest in the world. He has now become one of the largest retailers in the world. More than books, music and DVD’s. I have bought tools, software and a bike rack from Amazon.com in the last year. And, they are at the top of the game as it pertains to the customer.

I want to love Amazon and Jeff Bezos, but a hagiography like this one ignores the toll that a workaholic boss extracts not only on his employees, but indirectly the customers. This past summer it was revealed that worker treatment in Amazon warehouses was less than the par set by OSHA when workers were forced to work in an environment that was too hot, creating heat exhaustion, at which point workers were disciplined. Rather than cool the warehouses, ambulances were installed outside. Not cool, Jeff. Literally not cool. While employees are being iced down to keep them from dying (while Amazon crows about giving them free water), accuracy and speed are sacrificed. I can’t bring myself to shop at Amazon anymore. I have experience with warehouse organization, cycle time, etc and I know cycle time and LPH are god. Every time I clicked “Place Order Now” I pictured a low-paid warehouse worker sweating through a 95 degree+ environment with his job hanging over his head.

I am sure Bezos thinks it’s cute not to order pizza for his planning committees and to force workers to use crappy desks and subpar products but all this shows is an unwillingness to give back to the community they claim to serve. If a company that claims to be worth almost a hundred billion dollars can’t themselves be a customer of other companies, that says to me that it’s about cash hoarding.

Which is kinda proven by the fact that they expect their employees to devote so much of their lives to the company that burnout there is common. What this means is that Amazon is simply unwilling to hire to the necessary staffing levels needed to get the work done – so when we talk about the unemployment rate we can partially thank Amazon for that problem, since they like to force one person to do two people’s work.

I don’t see myself buying from Amazon anymore simply because of their business model and the people at the bottom who pay the price. There are plenty of other companies that can do for me what Amazon does, and lots of times cheaper too.

or is it like one of the corporate CEOs he doesn’t care as long as he makes more money? If you are a good CEO you should see and check out if any changes have been made after this. Can somebody please ask him?

Such a fascinating article. I’ve been a long-time Amazon customer and though I used to shop the sight exclusively for books, I’ve started to check their site before buying just about everything aside from food and clothing. After months of waiting, I finally splurged on a Kindle Touch with some of my Christmas gift money and happily take it along with me wherever I go now!

He’s definitely decoded the worker. It is remarkable that he employs tens of thousands of people, works them to the bone, compensates modestly AND receives all of the credit for Amazon’s success. He’s some kind of Svengali megalomaniac and it is terrifying to see more and more workers falling under his corporate command. I worked in the Breinigsville, Pa. warehouse, experienced the abuse, and I’ve been talking up a storm. Is Amazon in trouble these days? I remember reading similar Bezos worhip pieces around the time that Amazon issued its dismal 4Q earnings report. Can’t wait to hear their next earnings report. What’s the PE ratio these days?

Great piece – both the bright side and the not so bright side. Some additional thoughts come to mind:

1) The empty chair idea is brilliant. I going to steal that and perhaps claim it to be my own.

2) Perhaps it’s just me but 500 KPIs seems excessive, if not counter-productive. Granted, I know I’m arguing with success. That being said, there is a difference between best practices (that work for many/most) and the occasional exception to the rules. 500 KPIs strikes me as being an exceptional exception. Certainly at such volume they can’t all have significance.

3) What I find fascinating (and frustrating) is the reality that Amazon.com is a case study in TMI. It consistently violates a number of design and useability “standards”. I also don’t enjoy that the music dept will too often suggestion of things I have already purchased.

4) In that context, I believe that Amazon actually has two customer personas – those who love it and those who don’t. As time goes on the site and the brand become more and more optimized for the lovers while the don’ts become more and more marginalized. This can’t go on forever. It’s also one of the truths the metrics hide. I’m not faulting Bezos’ growth by diversity strategy but the truth is, that’s what it is. That is, the marginalized need not be addressed.

5) Interesting that the employee culture is also based on two distinct buckets. Perhaps a pattern here, yes?

6) I would also propose that there is an alt-view of the the two pizza teams. It’s no one of thrift per se but of culture. There are many who believe that innovation is the fruit of scarcity. Small teams fed by two or less pizzas creates a sense of scarcity. Smallness not only allows them to move faster but it also inspires them to do so. Innovation is a process. It’s not something that can be pushed down via some decree from the top. Bezos’ two pizza rule is a means, not an ends.

7) This bit is brilliant: For Bezos a data-driven customer focus lets him take risks to innovate, secure in the belief that he’s doing the right thing. “We are comfortable planting seeds and waiting for them to grow into trees,” says Bezos. “We don’t focus on the optics of the next quarter; we focus on what is going to be good for customers. I think this aspect of our culture is rare.”

Fascinating! Thanks for the comment. Riffing on a couple of your points:

2. On the 500 performance indicators, this is a hallmark of a very hands-on founder, no? Most of Amazon’s metrics are very granular and affect less than 5% of the business. (Adding more movies to Amazon Prime.) In most organizations with non-founder CEOs, it’s too hard to keep track of so much, all in the head of the guy at the top. By contrast, founders have seen the company since its infancy. So they can juggle all these indicators, as long as they don’t overwhelm employees with advice and new ideas. It’s quite a balancing act to pull it off.

4. The point about Amazon having two personas is intriguing. That may be a uniquely intense challenge for businesses that operate mostly online. (Facebook, for example.) You’re right: companies can paint themselves into a corner if they keep making it better for the faithful and lose touch with all the people who aren’t using their product.

6. Yes on two pizzas – and that concept could have been expanded greatly. Small teams thrive because they have to prioritize ruthlessly. There’s constant urgency, which leads to the doctrines of “the best idea wins,” fail fast, keep iterating, etc. By contrast, the feedback loops are much slower and more fitful for big teams. It’s too hard to get everyone up to date on the mission; it’s too hard to regroup quickly when results aren’t quite what was hoped. So on big teams (think pharma development) projects can wander for years. The “lean startup” guys articulate this quite well.

I want to respond to the discussion about personas and Amazon. I was on a centralized user experience team at Amazon from 2002-2005, and was writing a book on personas at the same time, so of course I tried to do a big persona effort while I was there. It involved great people from many teams, including the data team. We worked for six months and couldn’t come up with personas that would be useful for across all of the design teams at Amazon, and this experience led me to come to many of the conclusions that I still work with today.

Personas for something as huge as Amazon, especially an ecommerce site, don’t really work very well. That’s because, in order to be broad enough to capture the range of customers and goals that come to the site, they lack the specific details that help drive down and dirty design decisions. There were no ‘two personas’ used at Amazon, and I don’t think that George said there were. Instead, there were individual teams who decided that personas would be helpful for individual projects. For example, there was one memorable month when I helped the loose diamonds team and the autoparts team create personas…and both sets of personas were very different and very helpful (because the goals of people shopping for these items are very different). These personas were informed by data, but, for the most part, they were ad hoc and much more about keeping everyone on the same (customer-focused) page than they were about being ‘accurate.’

I think it’s important to remember that this article focuses on the brilliance of the business decisions that Jeff makes. Personas are most helpful when there are clear business goals, and Jeff provides those in a very customer-focused way. This article does NOT focus on how those ideas turn into designs–and that’s where personas are helpful in an organization this large. That’s not to say that personas can’t be incredibly helpful in coming up with new ideas for great ways to delight customers. But there are plenty of those at Amazon without the personas….the challenge comes in bringing the ideas to life, and that’s where the dozens of personas I helped create at Amazon were quietly, invisibly helpful.

It’s one thing to be super-brilliant in a (sometimes annoying!) way, like Jeff is. It’s another thing to translate a super-brilliant concept into a design that actually makes sense, all the way down to the details, and therefore brings the concept to life.

So let me get this straight… the previous “CEO to meet, emulate and deify” was Steve Jobs, who presided over worker abuse at Chinese factories, and now the heir to Steve Jobs is a guy that presides over distribution centers in the U.S. that abuse workers. Such as described in this Seattle Times article: http://seattletimes.nwsource.com/html/businesstechnology/2017901782_amazonwarehouse04.html

What a sad reflection on leadership. I don’t desire to deify, let alone emulate, either. My team truly is my most important asset, not my highest “cost.” I treat them better than I treat myself.